Sharon Juwah and Ibukunoluwa Adebara1

The Court of Appeal seemed to have set the records straight in its popular 2016 judgment of Esso Petroleum v NNPC2 on the non-arbitrability of tax related matters- its stance being that tax related matters are not arbitrable. A dilemma is however created by the fact that whilst arbitration as a means of alternative dispute resolution is being embraced for its effectiveness and timeous resolution of disputes, the workings of the State seem to exclude an integral part of the economy from benefiting from the arbitral process.

More so, recourse to the Tax Appeal Tribunal in Nigeria as a prelude to the Federal High Court despite the provisions of Section 251(1)(b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) casts further doubt on the position of the appellate court in the Esso Petroleum v NNPC3 case.

This article attempts to unravel the rationale behind the non-arbitrability of tax disputes in Nigeria and proffer suggestions that may facilitate the speedy resolution of tax related disputes upon a consideration of what obtains in other jurisdictions. 

The Nature of Tax Transactions

Tax is a mandatory government levy imposed in accordance with reasonable yardsticks for apportionment on persons and property within the jurisdiction of the tax authority.4 According to Egwaikhide, it is a compulsory payment imposed by legislation5, which is used to withdraw resources from the private sector of the economy for the government to cover the cost of providing public goods and services, law and order, healthcare and education amongst others.6

Relationship between Taxation and Arbitration

Arbitration has often been described as an alternative form of dispute resolution where there is a deliberation as to the rights and liabilities of parties determined by a third party instead of having recourse to a court of law.7 The recourse to arbitration is usually predicated on an agreement between the parties involved, via the inclusion of an arbitration clause in their contracts or the execution of a submission agreement. 

The Supreme Court aptly captured the meaning of arbitration in the case of Nigerian National Petroleum Corporation v Lutin Investment Ltd & Anor8 when it defined it as "the reference of a dispute or difference between not less than two parties for determination after hearing both sides in a judicial manner, by a person or persons other than a Court of competent jurisdiction".

Parties in Arbitration determine the person or persons to resolve their dispute i.e. Parties have autonomy as to the decision maker who would be an experience person in the area of dispute.

In the case of Kano State Urban Development Board V Fanz Construction Limited9, the Supreme Court expressly stated categories of matters that could not be subject to resolution by arbitration and they included criminal matters, void agreements, divorce and similar disputes.  It is worthy of note that the decision of the court was silent on the arbitrability of tax disputes yet taxation was still not subject to resolution by arbitration, hinged on speculations that taxation was related to public policy.

The relationship between taxation and arbitration in Nigeria has often been considered to be a strained one. The speculations seemed to have been sufficiently put to bed in the landmark cases of Esso Petroleum and Production Nigeria Ltd & SNEPCO v. NNPC10 and Shell (Nig.) Exploration and Production Ltd & Ors v. Federal Inland Revenue Service.11 The outcome of the deliberations of the Court of Appeal in both cases is that where matters relating to taxation are in dispute, such matters are not arbitrable.

Current Legal Framework of the Resolution of Tax Disputes through Arbitration

In the Nigerian legal system, there seemed to be no express statute or case law which spelt out disputes that were non-arbitrable until the case of Kano State Urban Development Board vs. Fanz Construction Limited12 where the Supreme Court recognized the following categories of matters as non-arbitrable in Nigeria:

  1. indictment for an offence of a public nature;
  2. dispute arising out of an illegal contract;
  3. disputes arising under agreements void as being by way of gaming or wagering;
  4. disputes leading to a change of status such as divorce petition; and
  5. any agreement purporting to give an arbitrator the right to give judgment in rem.

Once again, the writers seek to point out that taxation was conspicuously missing from the list. However, the Court made an attempt to lay the guideline to be followed in determining what kind of matters are arbitrable13. The test to determine this is whether the dispute is a civil matter and can be compromised lawfully by way of accord and satisfaction.14

The Court of Appeal cleared all doubts relating to the arbitrability of tax disputes when it subsequently extended the scope of non-arbitrable matters by virtue of its decision in the case of Esso Petroleum and Production Nigeria Ltd & SNEPCO V NNPC.15 The court reasoned that taxation was under the exclusive jurisdiction of the Federal High Court and thus cannot be subject to resolution via alternative dispute resolution- specifically, arbitration. In this case, the court held that any dispute raised on the basis of tax assessments could only be remedied with recourse to sections 41 and 42 of the Petroleum Profit Tax Act which does not permit arbitrating over tax disputes. 

The position of the Court of Appeal in both cases was hinged on the following:

  1. The Federal High Court has exclusive jurisdiction on civil matters relating to the revenue of the Government and pertaining to the taxation of persons subject to Federal tax.16
  2. The laws guiding arbitration and conciliation are subject to other laws which prohibit certain matters from being submitted to arbitration.17  
  3. Arbitral awards are subject to the court's discretion and may be set aside on the application of a party who shows the decision was based on a non-arbitrable matter beyond the scope.18


Esso Petroleum and Production Nigeria Limited & SNEPCO v. NNPC19

Esso being contractors filed a claim to an arbitration panel against Nigerian National Petroleum Corporation (NNPC) (the Corporation) for acting contrary to the terms of the Petroleum Sharing Contract (PSC) between them. Their contention was that NNPC unilaterally lifted more cargoes of available crude oil to the tune of US$1,584,500,000.00 as against the allocation for lifting which was prepared by the contractors. Consequently, the Corporation filed an unauthorized Petroleum Profit Tax (PPT) returns to the Federal Inland Revenue Service (FIRS) as opposed to what was forwarded to them by the contractors for filing, contrary to the terms of the PSC.

The contentions of the contractors before the panel were that the excess lifting was in breach of their agreement. Another contention was that the Corporation could not unilaterally submit its own PPT returns, nor modify what was forwarded to them by the contractors. 

The panel gave an award in favour of the contractors, but the Corporation appealed to the Federal High Court to set aside the award of the panel on the basis of lack of jurisdiction. The Federal High Court on May 22, 2012 set aside the award on the grounds that the arbitrators had misconducted themselves and acted beyond their scope of power when they issued an award on a tax related matter. On further appeal, the Court of Appeal on July 22, 2016 agreed with the Federal High Court stating that tax related matters are not arbitrable citing Section 251(1)(b) of the Constitution. This however excludes other elements of the transaction such as contractual claims. The Court of Appeal ordered a restoration of the panel's award with respect to the preparation of PPT returns and lifting allocation. These grounds were deemed contractual claims that can be severed from tax claims.


Shell Nigeria Exploration and Production Limited & 3 Ors V Federal Inland Revenue Service

The decision in Esso's case was reinforced in this case where the FIRS intervened in the arbitral proceedings claiming that the panel lacked jurisdiction. The Court of Appeal held that the intervention of the FIRS was valid, as matters relating to the assessment, computation and payment of taxes are within the purview of the Federal High Court20 and cited Section 251(1)(b) of the Constitution in support of this.

What is clear from both cases is the position of the Court of Appeal that when tax related matters are in contention, arbitral panels lack jurisdiction. While contractual claims emanating from the transaction between both parties may be severed and decided over by the panel, any claim relating to tax would fall outside the scope of powers of such an arbitral tribunal. The Petroleum Profits Tax Act (PPTA) under section 42 makes specific reference to the Federal High Court for appeals against an assessment. Section 42(8) goes on to state that 'the judge may confirm, reduce, increase or annul the assessment or make an order as he may deem fit.' A thorough reading of all the statutory provisions cited, coupled with the twin pronouncements of the Court of Appeal referred to will form the legal bedrock of the non-arbitrability of taxation disputes in Nigeria.


The Tax Procedures Act in Kenya provides that a taxpayer wishing to contest his tax assessment may apply to the tax commissioner. If dissatisfied with the decision, he/she may appeal to the Tax Appeals Tribunal and subsequently to the High Court of Kenya before the Court of Appeal. The unique feature here is that the taxpayer and commissioner enjoy the liberty to opt for resolution through mediation21. In furtherance of this, the revenue authority put forward an alternative dispute resolution framework. The Kenyan government22 through the revenue authority has been able to recover over KShs 6.5 billion in respect of over 140 disputes resolved. 

According to the United States Agency for International Development's (USAID) 2013 Report on Leadership in Public Financial Management, 95% of tax disputes in Canada23 are resolved through ADR24, 85% in Australia and 75% in Brazil. In South Africa, an estimate of 66% and in Kenya, 36%. These countries have considered the vast benefits25 associated with ADR compared to their court systems including reduced costs, speedy resolution and confidentiality26

The ADR Framework27 however is silent on the mode of alternative dispute resolution to be used but it can be gleaned from the guidelines that the framework is leaning towards mediation. This is because the facilitators are there to guide parties and are to remain neutral throughout the process but notably, the facilitator cannot impose any decision regarding the outcome of the dispute28.  The disputes brought before a panel border on tax assessment but exclude matters that require the technical interpretation of law or statute. The timeline for this procedure is pegged at 90 days29

On an international level, tax disputes that occur between two or more states are governed by the tax treaties that established the relationship between the states. With respect to these disputes, arbitration is encouraged as a means of settlement.30 The Organization for Economic Cooperation and Development (OECD) has repeatedly called for the use of arbitration in resolving tax disputes and has gone further to provide a template for arbitration clauses that may be incorporated into tax treaties in its OECD Model Tax Treaty.

Arguments in support of this position by OECD are premised on the principles of public international law31 that courts of one country would not waive their sovereignty by adjudicating nor enforcing matters regarding the revenue laws of another state32 - meaning that when it is the substantive tax law of a state as against another state in question, arbitrability in that regard fails.33 However, tax disputes only become arbitrable when it is a tax treaty that gives rise to such tax transactions.34

The writers note that matters such as aviation35, maritime36 and banking37 disputes which are also under the exclusive jurisdiction of the Federal High Court like tax disputes are permitted to be resolved through arbitration. Such contracts usually contain an arbitration clause which has quickly become an industry practice. Interestingly, there is the Maritime Arbitration Association of Nigeria which promotes the arbitration of maritime disputes instead of clogging the Federal High Court.  

Taxation differs from aviation, maritime and banking because the PPT Act is clear as to who is to adjudicate or resolve tax disputes through specific mention of the judges and recourse to the Federal High Court for such disputes. Ordinarily, a strict interpretation of Section 251(1)(b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) should work to oust the TAT's competence as well. However, since the TAT is backed by Federal Inland Revenue Service (Establishment) Act 200738, the body may incorporate the elements of arbitration or mediation into its modus operandi. This can be achieved by collaboration with the Multi-Door Courthouse of various states of the Federation. A resolution guideline can be drafted to guide the procedure of arbitration or mediation by the TAT on tax related disputes. The burden of appointment and funding of facilitators or arbitrators should fall on both parties.39

In conclusion, one thing that is clear from our submissions in the course of this work is that while the present case law in Nigeria provides that tax matters are non-arbitrable, other jurisdictions hold a different opinion and in fact heavily rely on arbitration whenever tax related disputes arise. This goes to point out that arbitrability of tax matters is not an impossibility.

The courts are bombarded with numerous cases that are subject to years of deliberation and delays before they are resolved and some, more often than not subsequently go on appeal. Justice delayed is inevitably justice denied and this is a setback that the adoption of arbitration seeks to resolve. It is essential that Nigeria strives to abide by international best practices. This can be achieved by a review of the current workings of the legal  system especially as it relates to the resolution of tax disputes. Tax disputes are becoming prevalent in Nigeria with the aggressive manner in which the tax authorities both state and Federal are going after corporate bodies and individuals on nonpayment or inadequate payment of tax. The writers suggest that a viable step in this direction is the unimpeded arbitrability of tax related disputes.


1. Associates at Punuka Attorneys and Solicitors. Sharon Juwah ( and Ibukun Adebara (

2.  Unreported Appeal No. CA/A/507/2012; delivered on 22nd July 2016

3. supra

4. Ade Ipaye, "Nigerian Tax Law and Administration, A Critical Review", 1st ed., ASCO Prime Publishers, London, 2014, pg. 2

5. Whitehouse C., "Revenue Law Principles and Practice", 17th ed. Butterworths, London, 1999, pg. 5-6

6. Egwaikhide Festus O., "Taxation and State Building in a Democratic System" (2010) 11 (1) Nigerian Taxation (The Official Journal of the Chartered Institute of Taxation of Nigeria (CITN))

7. Halsbury's Laws of England (1991) 4th ed., vol. 2, Reissue, p. 32

8. (2006) 2 NWLR (Pt. 965) 506 at 542, para. H

9. (1990) 4 NWLR (Pt. 142) 1 at 33 paras A - B

10. Unreported Appeal No. CA/A/507/2012; delivered on 22nd July 2016

11. Unreported Appeal No. CA/A/208/2012; delivered on 31st August 2016

12. (1990) 4 NWLR (Pt. 142) 1 at 33 paras A - B

13. Ade Ipaye, "Nigerian Tax Law and Administration, A Critical Review", 1st ed., ASCO Prime Publishers, London, 2014, pg. 2

14. Supra paras H

15. L Ochulor, "The Dialectics of the Court of Appeal Pronouncements on Non-arbitrability of Tax Disputes in Nigeria: Drawing a Distinction Between Tax and Contractual Disputes in Nigeria" accessed 1st May 2020

16. Section 251(1) (a) - (b) of the Constitution of the Federal Republic of Nigeria 1999 (As Amended)

17. Sections 35 of the Arbitration and Conciliation Act

18. 29(2) Arbitration and conciliation act. this is further emphasized by Sections 48(b)(ii) and 52(2)(b)(ii)

19. Appeal No. CA/A/507/2012

20. In accordance with the Petroleum Profits Tax Act

21.  Miller Advocates, 'An Overview of Alternative Tax Dispute Resolution Framework' accessed on 1st May, 2020

22. The Tax Procedures Act, No 29 of 2015 (TPA), provides for an elaborate Internal Dispute Resolution Mechanism (IDRM)

23. Chris Jaglowitz, edition in Tax Disputes", accessed on 23rd April, 2020

24.  Karen Dawn Stilwell, Mediation of Canadian Tax Disputes",  accessed on 21st April, 2020

25. United States Agency for International Development (USAID) 2013 report on Leadership in Public Financial Management

26. Kenyan Revenue Authority, "Disputes Appropriate for Arbitration", accessed on 20th April, 2020

27.  'Kenyan Revenue Authority: The Alternative Dispute Resolution Framework' launched on 17th June, 2015, revised 27th June, 2019 accessed on 1st May, 2020

28. ibid

29. Section 55, Tax Procedure Act (TPA)

30. Thomas W. Welde and George Ndi, "Stabilizing International Investment Commitments: International Law Versus Contract Interpretation", (1996) 1 Tex Int'l LJ 215 at 427

31. Furthermore, one thing that is common among most jurisdictions is that when disputes touch on the sovereignty or the authority of a sovereign, such disputes are mostly not arbitrable

32. CMV Clarkson and Jonathan Hill The Conflict of Laws (4th ed, Oxford University Press, New York, 2011) at 49

33. Lauren Waveney Brazier, The Arbitrability of Investor-State Taxation Disputes in International Commercial Arbitration", 2013, being undergraduate Thesis submitted for LLB (Honours) Degree, Victoria University of Wellington, pg. 34. , accessed on 1st may, 2020. See Computer Sciences Corp v Iran (Award) (1986) 10 Iran-US CT Rep 269 at 257 where the Tribunal drew the distinction between contractual claims which are arbitrable and non-contractual claims which are not arbitrable. The Tribunal went on to state that it had no jurisdiction over claims relating to the application of tax laws of Iran.

34. In Occidental Exploration and Petroleum Company v Ecuador (Award) (2004) 12 ICSID Rep 59, based on refunds of value added tax, the Tribunal found that the transaction between the parties was based on the Ecuador-US Bilateral Investment Treaty which gave the tribunal jurisdiction in the event of a dispute. The matter though tax related was held to be arbitrable.

35. Babalakin & Co, "Aviation in Nigeria" Lexology, May 31, 2019, accessed on 29th April, 2020

36. Adedoyin Rhodes-Vivour (Mrs), "Arbitration in the Resolution of Maritime Disputes", paper delivered at the 11th Maritime Seminar for Judges held at Sheraton Hotels and Towers, Abuja from 1st- 3rd June 2010, accessed on 18th April, 2020

37. Oluwole Akinyeye and Olisa Agbakoba, "Nigeria: Arbitration of Banking and Finance Disputes in Nigeria", 28th November 2018, accessed on 19th April,2020

38. Section 59(1) Federal Inland Revenue Service (Establishment) Act 2007

39. Each party picks an arbitrator or facilitator and the selected persons elect a third person- which would form a three-man panel. Secondly, the sessions should be funded in a 50:50 ratio between parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.